Only Four Days Left To Cash In On Sa Sa International Holdings' (HKG:178) Dividend

It looks like Sa Sa International Holdings Limited (HKG:178) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Sa Sa International Holdings' shares on or after the 3rd of December will not receive the dividend, which will be paid on the 19th of December.

The company's next dividend payment will be HK$0.0115 per share, on the back of last year when the company paid a total of HK$0.034 to shareholders. Looking at the last 12 months of distributions, Sa Sa International Holdings has a trailing yield of approximately 5.4% on its current stock price of HK$0.63. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Sa Sa International Holdings can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Sa Sa International Holdings paid out 107% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Sa Sa International Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 40% of its free cash flow in the past year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Sa Sa International Holdings fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Check out our latest analysis for Sa Sa International Holdings

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Sa Sa International Holdings's earnings have been skyrocketing, up 63% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sa Sa International Holdings has seen its dividend decline 18% per annum on average over the past 10 years, which is not great to see. Sa Sa International Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Sa Sa International Holdings an attractive dividend stock, or better left on the shelf? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Sa Sa International Holdings's paying out such a high percentage of its profit. In summary, it's hard to get excited about Sa Sa International Holdings from a dividend perspective.

In light of that, while Sa Sa International Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Sa Sa International Holdings and understanding them should be part of your investment process.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.